Wealth vs. Legacy

Published on April 24, 2024

When considering an exit strategy for your business, one important factor is determining your highest priority - maximizing personal wealth, keeping some ownership stake, or protecting the company culture and legacy you've built. For entrepreneurs focused on the latter, selling to an individual investor may be an attractive option.

This episode features Carl Allen, a former HP executive responsible for acquiring companies, who now coaches individual investors on buying businesses. Allen provides insights into how individual investors structure acquisition offers and approach preserving a company's culture post-acquisition.

Allen emphasizes that individual investors are often motivated by non-financial factors like being their own boss or pursuing a passion. As such, they may be more inclined to maintain a company's existing culture, employees, and vision compared to private equity firms solely focused on financial returns.

However, Allen cautions that entrepreneurs must carefully vet individual investors to ensure alignment on protecting the company's legacy. Red flags include investors with minimal industry experience, overly optimistic financial projections, or plans for major operational overhauls.

To make a company attractive to values-aligned individual investors, Allen recommends "de-risking" by diversifying customer base, implementing robust systems/processes, and cultivating a strong management team. This reduces an acquirer's perceptions of over-reliance on the exiting founder.

Allen also discusses strategies like leveraging the "buy box" (promising a set purchase price if specific metrics are met) and minimizing personal risk by avoiding excessive debt/personal guarantees in deal structures.

Ultimately, Allen stresses that selling to an individual investor requires doing thorough due diligence to find someone who genuinely shares your vision and will steward the company's culture and employees with care.

Additional background on Carl Allen: Allen spent over 20 years at HP in various M&A roles before becoming an entrepreneur-in-residence at a private equity firm. He now runs a coaching program called The Personal Acquisition Academy to train individuals on buying small businesses. His expertise blends corporate acquisitions experience with an understanding of the mindsets and approaches of individual investors purchasing companies.

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